Why is Inflation All over the World the True Reason for the Decline in the Bitcoin Price?

When we are talking about the value of something in an economy and all over the world then the main factors which determine the value of something are the demand and supply. Here when the demand rises for something, it also leads to the rise in price for the same. And if the supply increases for something then it eventually results in the decline in the price for the same.

Now the main aspect which we all need to consider here is that when the central bank is going to increase the money supply then it will obviously be going to result in a fall in the actual value of money. So, the exchange value of money will decline, which simply leads to inflation.

About Issuance of Bitcoins:

If we relate the above given demand and supply scenario with bitcoins, then we already know the fact that bitcoins can only be issued upto certain limit that is 21 millions. This means there will be no more bitcoins after it reaches its issue limit of 21 million bitcoins.
Now the supply of 21 million has not been fulfilled yet. So, the more bitcoins can certainly be issued at this point of time. Hence, the more supply can absolutely lead to fall in prices.

But this fact doesn’t prove that the value of bitcoins is going to decline in the near future. Because the value of something can also be determined with the demand and supply of relative goods where the value of one such good usually goes down as it sees the increase in supply of the same. Here the relative goods which we are talking about are the bitcoins and the money currency as well. And the fact of affecting the value of one good with another has been proved in the lockdown situation.

Issuance of Currency in Pandemic:

During the pandemic conditions all over the world, almost every country has issued huge amounts of funds in the form of its currency in its respective economy to meet the requirements of the people. This means the money supply actually increases during the Covid-19 pandemic situation. And the increase in supply eventually decreases the actual value of money that results in inflation.

Further, this overflow of money currency in every economy makes people dependent on it for the purpose of exchange. So, the focus of people during this pandemic shifted towards monetary currency from bitcoins. And the fall in the demand of bitcoins for exchange leads to decline in the price of bitcoins as well. That is why it has been mentioned that the inflation all over the world is the true reason for the declines in the bitcoin price.

Bitcoins: The Hedge Against The Inflation:

Now it has already been proved that the reason for the rise in inflation is generally the increase of money supply in an economy in the long run. Further, Bitcoin is the relative good for money which defines the demand for one good will decrease with the increase in supply of another good which actually has been proved during the pandemic.

But there are many economists who literally ask investors to hold the bitcoins as hedge against the inflation and they are absolutely not so stupid to do that. And this is absolutely because of the limited number of bitcoins that is 21 millions and which cannot be issued more than this value. So, this can be termed as an exception in the theory of relative goods.

This also defines that you can actually start accepting bitcoin in your business. Because the number of bitcoins is going to be limited in future. And when the supply is going to be stopped then demand is certainly going to rise as compared to the available supply of bitcoins in the cryptocurrencies market. This fact clearly defines that the more demand for bitcoins in future will result in higher value of bitcoins which you are going to hold with you in future. Hence, this is the real time when you can actually start accepting bitcoins for your business in exchange for your goods and services.

Conclusion:

From the above discussion, it has been clear that people generally react to the news, facts and rumours as well related to some particular markets which eventually affects and decides the demand and supply level of that commodity whether its financial or not. And this is the same scenario with the money currencies whose value declines with the overflow of funds in a particular economy which creates the situation of inflation. But you still have the choice to deal with this long run inflation by hedging the bitcoins against it. So, start accepting bitcoins now and reap the benefits in future.

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